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Consumer confidence plummets in SeptemberPosted by Retirement on: 2005-09-28 06:52:50 in category:
Finance [ Print | Permalink / 0 Comment(s) ] ECONOMY:Some analysts say Americans might be overreacting to rising gas prices after the hurricanes. BY MIKE HUGHLETT CHICAGO TRIBUNE It didn't take a hurricane to dent Jesse Walker's confidence in the economy. For the past few months, the Chicago security guard has been packing a lunch, worried about rising prices. Then Hurricane Katrina hit, gasoline prices skyrocketed, Rita followed and now "everything seems like it doubled," said Walker, who is saving to buy a house with his wife, a school bus driver. Count Walker among the growing masses of Americans whose faith in the U.S. economy is wavering. Consumer confidence plunged in September, hitting a low not seen in two years, according to a monthly report released Tuesday by the Conference Board, a research group. It was also the biggest single-month drop in confidence in 15 years. Economists pay attention to consumer confidence because it can be a leading indicator of spending. Falling confidence could translate into reduced spending. And spending is a lynchpin to the nation's fiscal health, making up about two-thirds of U.S. economic output. Some analysts cautioned that consumers might be overreacting to the run-ups in gas prices after the hurricanes. Still, with the stock market going sideways and concerns the housing market could be cooling, the specter of a spending slowdown is a troubling one with the holiday shopping season looming. The Consumer Confidence Index, compiled from a survey of U.S. households, dropped 18.9 points to 86.6 from a revised reading of 105.5 in August. That marked the biggest slide since October 1990, when the index fell 23 points to 62.6 amid the onset of a recession, the buildup to the first Gulf War and a spike in gasoline prices. The September reading was also the lowest level since October 2003, when it registered 81.7. Bad economic news arrived on another front Tuesday, as well. The U.S. Commerce Department reported that sales of new homes fell in August by the largest amount in nine months, fuel for speculation that the nation's housing boom is fading. August new-home sales dropped 9.9 percent from July and all regions saw a decline, including a 10.6 decrease in the Midwest. Still, sales of new homes for August were 6 percent ahead of the same month in 2004. Economists were expecting a big drop in the Consumer Confidence Index. "The survey was taken in a dark week immediately after Katrina," said Carl Tannenbaum, chief economist at LaSalle Bank in Chicago. "The images (in the media) were of the type that don't makes us confident about anything." Dan Laufenberg, an economist at Ameriprise Financial in Minneapolis said that because the hurricanes were such an abnormal occurrence, "you have to be careful not to read too much into the (September) number." In Washington, Republicans were assessing the political impact of the numbers, particularly the drop in consumer confidence, saying it gives them more reason to worry about next year's elections. "These are serious numbers," said Rep. Tom Cole, R-Okla., a political operative-turned-congressman, referring to the consumer confidence figures. "The question is whether this is a trend or a reaction to Katrina and Rita." Cole said he suspects the public's mood will improve by this time next year when Republicans, who control Congress and the White House, will face the judgment of an uneasy electorate. But in the intervening months, he said, the political consequences of consumer anxiety are "real serious." Sen. John McCain, R-Ariz., said Republicans are on the defensive. "Any time our approval ratings go down we have problems. That's why we're working on Katrina. That's why we're working on Rita," he said. The latest AP-Ipsos Poll, conducted Sept. 6-8, showed more Americans are uneasy about President Bush's handling of the economy. The poll found that 41 percent of respondents approved the president's handling of the economy, while 57 percent disapproved and 1 percent were not sure. That rating is the lowest since January 2002, when Ipsos began tracking Bush's approval ratings. But Federal Reserve Chairman Alan Greenspan said the U.S. economy has absorbed the recent sharp increases in energy prices because it has become more dynamic, competitive and open to global trade over the past quarter-century. That resilience results from advancing technologies and from government getting out of the way of free markets, Greenspan suggested in a speech delivered via satellite Tuesday to the annual meeting of the National Association for Business Economics in Chicago. At a time the aftermath of Hurricane Katrina has included spiking gasoline prices, plunging consumer confidence and widespread forecasts of a brief economic slowdown, Greenspan sounded upbeat in explaining why he thinks the economy has not stumbled seriously in two decades despite natural disasters, a stock market crash, terrorist attacks and other shocks. The key, Greenspan said, is economic "flexibility" -- a term he has used frequently to refer to the ability of prices, interest rates and exchange rates to adjust rapidly in response to changing conditions. "The flexibility of our market-driven economy has allowed us, thus far, to weather reasonably well the steep rise in spot and futures prices for oil and natural gas that we have experienced over the past two years," Greenspan said. "The consequence has been a far more stable economy." 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